May 20, 2010

The capital markets play an interesting and pivotal role in real estate markets;

Interest rates on mortgages are led by movements of highly complex bond markets.

The number of loans that are made are a function of many thingsâ€”but most importantly: how easy these loans are to be securitized and sold off to investors thereby reducing risk for the bank actually making the loans.

BUTâ€¦.: The stock market (at times) is the most important OF ALL for Real Estate:

Stock prices are a leading indicator of activity and prices in the high end of all real estate markets as liquidity events enable trophy home purchases and second, third and fourth homes around the world: homes for skiing, homes for surfing, homes for college kids, homes for wivesâ€”aka incremental demand at all price points!

Stock prices often lead employments markets which lead activity in the lower echelons of real estate markets. Average & median home prices are fundamentally driven my jobs and incomes in the commutable distance to the property. Stock prices reflect better expectations which drive hiring and firing.

Most interestingly of all: Short term movements in stock prices reflect short term changes in attitude of large numbers of people. These same attitudes drive home purchase decisions by large numbers of people.

We all already know that mortgage lending has been difficult. It has eased somewhat, but itâ€™s still tight.

The direction of Marin Real Estate markets will be led by the stock market. If the stock market is supported near 8,500 on the DOW and we bounce around between that level and where we are now (10,300+-) everything will be fine, the bottom of our real estate market will happen sometime in 2010 or early 2011.

Currently, the stock market is all important in all price leves:Â if the stock markets retests the March 2009 lowsâ€”that will spell serious trouble.Â TheÂ ultimate bottom of the stock market correction will signal that the bottom of the real estate market is 6-12 Â months off: Â as it takes time to sell homes when loans are hardÂ to come by, companies arenâ€™t hiring, and everyone has lost money in stocks.

The ultimate scope of the housing correction, and the Great Recession will be determined by stock market price levels over the next 6-18 months.